Deferred revenue

A/c entries 1049 views 4 replies

Upasana Chakraborty

Director Finance

33 Points Joined October 2011

Hi.

I am preparing accounts for an IT service industry for its 3rd year. In previous year accounts I Saw Deffrred Revenue allocation to all the maintanence revenue of a contract which started in next FY allocated to Deffered Revenue. The total cost of contract is recorded in the Net Income, also the Customer Closing balance also includes the maintenance cost. The total amount of contract was not fully paid in the FY. I am not confused as in what kind of entry would have been passed to have the balance in the deffered revenue accounts as that amount was still to be received.

Also in current FY how to treat the balance of the previous year Defferred revenue?

Thanks and Advance.

Replies (4)

LALIT KUMAR GANERIWAL

accountant

241 Points Joined August 2011

NOT UNDERSTAND WHAT DID U WANT?

Upasana Chakraborty

Director Finance

33 Points Joined October 2011

Okay.. Let say the company sold a service for 10000, 20% is maintanence cost for the service which start after the service is delivered. Now in the previous FY the service was delivered but maintanence start in current FY. Customer paid whole 10k in current FY. The accountant has put 2000 in deffered revenue in previous year accounts. has took full 10k in net income. customer has 10k balance at the end of the year.

I dont understand how a revenue not yet received can be put into deffered revenue. can anyone tell me what entry must have been passed?

CA MAULIK

C.A

937 Points Joined January 2009

I thnk entry passd was wrong,as per revenue recognisation only 2000 is a revenue that can be recognised in first yr..PY,rest 8000 shoul be deferred to the next years..and when cash/cheque received ,adjustments to Deferred revenue account should be done..

Tirthankar Mukherjee

Article

47 Points Joined December 2008

As per AS-9 revenue from service transaction is usually recognised as the service performed, either by proportionate completion method or completed service method. Thus, 2000 taken as deferred revune is not justified. Since, deferred revenue is defined as cash/cheque received in advance prior to income earned. Hence the amount sale should be treated as accrued income instead off deferred income.